The birth of Skype Story

The birth of Skype Story

"I don't care about Skype!" millionaire Jaan Tallinn tells me, taking off his blue sunglasses and finding a seat at a cozy open-air restaurant in the old town of Tallinn, Estonia. "The technology is 10 years old—that's an eternity when it comes to the Internet Age. Besides, I have more important things going on now."

Tallinn has five children, and he calls Skype his sixth. So why does he no longer care about his creation?

On August 29, 2003, Skype went live for the first time. By 2012, according to Telegeography, Skype accounted for a whopping 167 billion minutes of cross-border voice and video calling in a year—which itself was a stunning 44 percent growth over 2011. That increase in minutes was "more than twice that achieved by all international carriers in the world, combined." That is to say, Skype today poses a serious threat to the largest telcos on the planet. It also made Jaan Tallinn and other early Skypers rich.

But something changed along the way. Skype is no longer the upstart that refused to put signs on its offices, that dodged international lawyers, and that kept a kiddie pool in the boardroom. This is the real story of how a global brand truly began, told in more detail than ever before by those who launched it.

In the year 2000...

In 2000, as dot-com fever swept America, an entertainment and news portal called Everyday.com brought together a sextet of European revolutionaries.

It began with two people from the Swedish telecom Tele2—a Swede named Niklas Zennström and a Dane named Janus Friis. Zennström was Tele2 employee no. 23; Friis worked his way up in customer service for a Danish operator.

The Swedish owner of Tele2, Jan Stenbeck, was determined to launch the Everyday portal and launch it quickly. As the Swedes were having trouble, Stefan Öberg, the Marketing Director in Tele2's Estonian office, proposed finding some Estonians for the job. In May 1999, Tele2 published an ad in a daily newspaper calling for competent programmers and offering the hefty sum of 5,000 Estonian kroons (about $330) a day—more than an average Estonian earned in a month at the time.

The work went to Jaan Tallinn, Ahti Heinla, and Priit Kasesalu—Estonian schoolmates and tech fans. They had been into Fidonet, a computer network which preceded the Internet, since the Soviet era. They started a small company, Bluemoon, which made computer games such as Kosmonaut. (In 1989, Kosmonaut became the first Estonian game to be sold abroad.) The game earned its creators $5,000 dollars, which at the time was a large sum for any Estonian. But by the turn of the century, the three friends were down to their last penny and Bluemoon was facing bankruptcy.

Short of money, they applied for and got the Tele2 job. The PHP programming language needed for the work was new to them, but the team learned it in a weekend and completed their test assignment much faster than Tele2 requested.

The last of the Skype sextet, Toivo Annus, was hired in Tallinn to manage the development of Everyday.com. The site would soon be complete, with Zennström and Friis working in Luxembourg and Amsterdam, and Annus and the Bluemoon trio working from Tallinn.

Tele2 was thrilled with the Estonians, but the Everyday.com portal failed commercially. Zennström and Friis left Tele2 and lived in Amsterdam for a while. The homeless Friis stayed in Zennström's guest room, and they turned the kitchen into a temporary office.

Together, Zennström and Friis pored over new business ideas. As the US was fascinated at the time with the scandal surrounding Napster, Zennström and Friis planned something similar. But where Napster infuriated the music and movie industries, Zennström and Friis hoped to cooperate with them. They didn't have the slightest doubt about where their new product should be created—in Tallinn, obviously. Kazaa was born.

Kazaa

Kazaa's P2P file-sharing program allowed files to be transferred directly from one computer to another without an intermediary server, thus solving one of Napster's problems. Jaan Tallinn developed the program in a nine-floor, Soviet-style brick building on Sõpruse Puiestee in the Tallinn suburb of Mustamäe. The apartment was actually Jaan Tallinn's home, and at the time, Tallinn was a work-at-home dad. (He only sold the apartment in 2012 and told me that he contemplated attaching a memorial plaque to the wall stating, "Kazaa was created here.")

Kazaa, ready for service in September 2000, swiftly became the most downloaded program on the Internet. The service picked up users at the rate of one per second. Heinla, Tallinn, and Kasesalu were sipping fine wine in their headquarters and thinking, "So this is what it feels like to have half of the world's Internet traffic go through your software."

But on the business side, Zennström and Friis failed to seal a deal with US film and music companies. Kazaa was sued for enabling piracy. "Stolen" music, films, and pornography were being distributed via the application, and the Kazaa owners soon found themselves hiding from an army of ferocious US lawyers.

Zennström repeatedly dodged court summons. One time, he went to see a play at a Stockholm theater and was approached by a stranger. The individual handed Zennström's wife a bunch of flowers and held out an envelope containing a summons for Zennström. The Swede made a run for it; the summons failed to be duly delivered. He was similarly pursued in London, this time by a motorcycle, but service again failed.

When Zennström went to Tallinn for visits with his team, he did so by ferry as he was too scared to fly (by now he's clearly gotten over this, as he owns a private jet and all). And once there, he remained nervous about visitors. "When someone came in through the door and we weren't certain who it was, Niklas would hide under the table," an Estonian coworker reminisced.

The Bluemoon boys began encrypting all of their correspondence and their hard drives. E-mails were not stored for longer than six months. No one wanted to know more than they absolutely needed to know. Zennström changed his phone number as often as he changed his socks.

Charges were never pressed against the coders Heinla, Tallinn, and Kasesalu, but they were involved in the Kazaa proceedings as "an important source of information." A California court requested that the men be questioned and that business secrets concerning Kazaa be confiscated. At first the Estonian government rejected the request, but after a second appeal, the trio was interrogated in the presence of US lawyers.

For the Estonians, the Kazaa proceedings were like playing with fire—a little dangerous but still exciting—and their names began to pop up in the international press.

Afraid of being arrested, Zennström and Friis avoided flying to the US for several years, even though Kazaa had been promptly sold (at least on paper) to Australian businessmen, and its headquarters had been moved to the island nation of Vanuatu. The duo failed to make peace with the US for several years, and their ultimate redemption cost Friis and Zennström big money. The two eventually contributed to a more than $100 million payout for the music and movie industries.

The birth of Skype

While lawyers were still at it with Kazaa, the software's creators were already searching for a new—and less legally fraught—outlet for their P2P technology. The intellectual property Kazaa developed was safe and sound in Zennström's and Friis's company, Joltid, based in the British Virgin Islands. The idea that would eventually become Skype germinated in the summer of 2002.

The team's Tallinn office was situated behind Stenbock House, then the seat of the Estonian government. On their way to work, the team kept stumbling upon their favorite spot in town, Valli Bar. The pub later attained legendary status—every new employee or visitor to Skype needed to be properly "inaugurated" at the bar. This experience included a shot of Millimallikas, a notoriously abhorrent cocktail consisting of aniseed vodka, tequila, and Tabasco sauce.

Zennström and Friis planned to create a new service that would allow the sharing of home Wi-Fi. But then Annus and Friis had their "eureka!" moment—they could make voice calls cheap and easy by sharing data peer to peer just as Kazaa did. They even talked about creating Wi-Fi phones, an idea that would later be implemented in Skype. In the spring of 2003, an early alpha was coded and shared for testing with about 20 people.

The name of the project originated from the words "sky" and "peer." Following the example of Napster and others, the name was shortened to "Skyper." But because the domain Skyper.com was already taken, the 'r' was shaved off. "Skype" it was.

Talking to a computer felt silly at the time—as silly as talking to your hand did when mobile phones first appeared. Feedback on the initial version of Skype was not exactly enthusiastic. The sound was glitchy, for instance. But when testers realized that they could now speak via computer to people on the other side of the world for free, attitudes changes.

Zennström and Friis never wanted to be big-time pirates or a thorn in anyone's side. However, Kazaa turned out to have done Skype a huge service. The Robin Hoods of the music and film business now pounced on the telecoms that were making hundreds of millions a year by selling long-distance calls.

Dodging international police was also deeply rooted in the new product, too. Right from the beginning, Skype conversations were encrypted and impossible to intercept. This would eventually change, but at the time it made Skype a perfect tool for criminals. When later services were offered for a fee (e.g., Skype-out), the creators soon discovered that Skype became a tool for laundering money from stolen credit cards. The company had a hard time combating this.

Others were getting into the Internet telephony game, though, and Skype's success was by no means assured. Even Estonian telecom Elion had its Netifon, which seemed better than Skype at first glance. After all, Netifon allowed users to make calls from a computer to a mobile phone. A few years later, however, Elion shut down the service as it was full of bugs and the setup was too complicated for users.

Skype did have a major advantage. Unlike other services, Skype slipped easily through firewalls. The program left no footprints on the Internet, the sound was improved dramatically, and the service worked like a charm. "Right from the start we set out to write a program simple enough to be installed and used by a soccer mom with no knowledge of firewalls, IP addresses, or other technological terms," said one of the early Skypers, Lauri Tepandi.

In 2003, Skype was listed in the commercial register of Luxembourg. Seven people controlled the company's shares: Zennström, Friis, the Bluemoon boys, Annus, and Geoffrey Prentice, an American dealmaker who drew up all of Skype's important transactions.

But they weren't making money. In the summer of 2003, Skype's development came to a halt as the company was unable to pay its developers. The question of whether to charge users a monthly fee so soon after launch would remain unresolved for some time. Zennström had unpaid bills, and the Bluemoon boys hatched a plan to name their asset management company "Borealis Kinks"—an anagram of "Niklas is broke."

On paper, the Skype business plan was not convincing enough for potential investors. As the dot-com bubble burst, the Internet appeared "dead" from an investment perspective. Yet telecoms were still going strong. Potential investors were nervous—not only about losing their money in ventures like Skype but also about having to pay legal costs. Napster was often brought up.

William Draper, an American venture capitalist, was one of the few to say that it was the right time to invest in P2P technology. His "emissary" Howard Hartenbaum was sent to Europe to make a deal with Zennström and Friis. Hartenbaum wanted to invest in the team, whatever they set out to do. It didn't matter if they had a product or not. They didn't need to prove anything. They already had Hartenbaum's and Draper's unwavering trust with Kazaa.

In the end, Draper, Hartenbaum, and some other early angels soon fuelled Skype with its first millions—and recouped their investment a thousand times over within three years.

Skype went live for the first time on August 29, 2003. The Skype team, consisting of about 20 people, celebrated this in Stockholm by watching Startup.com, a documentary about the bursting of the technology bubble.

On its first day, Skype was downloaded by 10,000 people. Within a couple of months, it already had one million users.

Funding

Suddenly, every venture capitalist began lusting after Skype. Zennström left many of them out in the cold, but $18 million was provided for Skype by a consortium of venture capitalists, including Index Ventures, Bessemer Venture Partners, Mangrove Capital, and Draper Fisher Jurvetson.

Steve Jurvetson, an investor of Estonian descent, was part of the group.

"I remember wondering: how can they be so good?" he told me, speaking about the Estonian core of Skype. "How can such a small group can do so much so quickly, compared to typical development efforts in, for example, Microsoft? I had the impression that maybe coming out of a time of Soviet occupation, when computers were underpowered, you had to know how to really program, effectively, parsimoniously, being very elegant in sculpting the programming code to be tight, effective, and fast. [That's] not like in Microsoft, which has a very lazy programming environment, where programs are created that have memory leaks and all sorts of problems, that crash all the time and no one really cares—because it's Microsoft!"

Jurvetson, who had already cashed in on Hotmail, was fascinated by Skype's talented team. (Nowadays, he's busy financing anything Elon Musk lays his hands on.) Jurvetson attended Skype's Supervisory Board meetings in Tallinn and, on one occasion, brought his father Tõnu with him. (Tõnu reminisced on the Radisson hotel's rooftop terrace about his departure from Estonia 60 years before, when he had escaped the Soviet invasion during World War II.)

After the meetings, Zennström and the Americans blew off steam in nocturnal Tallinn. Late one evening, the board members embarked on a kayaking trip on the Baltic Sea during which Zennström's kayak was capsized by a wave from a passenger ferry.

In the end, the VC investments were repaid "only" 40 times over, and Jurvetson was right about the talent of the Skype team. From its $8 million, Jurvetson's firm made $300 million in less than two years.

Startup pirates

Despite the inclination to avoid international regulation, little by little, Zennström and Friis learned to "boogie" with various countries' legislation. What was prohibited in the US could be entirely legal elsewhere. Everywhere, law enforcement wanted access. In response, Skype kept a low profile; even though Skype had been an international company since 2004, its eventual offices in Estonia, London, and Luxembourg didn't even have name plates.

The headquarters in Luxembourg was part a multi-story building not easily found by outsiders. It had no sign. A couple of floors up, you'd find an apartment where there was "an accountant working in the living room and another in the bathroom." Private conference calls were often made in a dark bathroom, since the fan started whirring as soon as the lights were switched on.

In London, where Zennström and Friis were then based, Skype was set up in an office with a glass wall. Behind the glass, at the other end of the corridor, a modeling agency was up and running. As the upper and lower parts of the glass wall were transparent and the middle part blurry, the mostly male employees watched mini-skirted models hurry past, seeing only heads and legs.

Corporate headquarters were officially based in Luxembourg from the beginning. One reason was that the tiny duchy had the lowest VAT rate (15 percent) in the EU, which is why all of Skype's sales passed through Luxembourg. However, Luxembourg was important to Skype for another reason: the country guaranteed a serene working environment. The duchy protects its companies and does not deliver claims or court papers. And Robert Miller, Skype's later legal adviser, would periodically go through the company's mailboxes in London and Luxembourg, removing the angry letters sent by telecom companies and government offices and shredding them without reading their contents.

"Miller is one of the few lawyers who doesn't hinder business," said Taavet Hinrikus, a former Skype employee who now works at a startup called Transferwise. "Most lawyers are all about the can'ts and shouldn'ts. Robert found ways we could... As a startup, you're a pirate anyway. It's impossible to obey every law! But when your company is the size of Microsoft, you can no longer afford not to."

However, Zennström claims that there were never any actual legal threats to Skype, except in a few countries like UAE and China. "From the beginning, I was very keen to comply with legislation and regulation, and we managed to keep Skype categorized as an electronic information provider—just like an e-mail provider rather than a telecom provider—for a long time," he wrote in an e-mail while on summer vacation sailing the Mediterranean. "That's why, for example, we never bundled Skype In and Skype Out."

Out of the kiddie pool

Until 2005, Skype operated casually. A network of people, who in many ways were free to come and go as they pleased, worked there as consultants and dealt with things they had never come across before. Ideas were programmed into a product the moment they popped into someone's mind; some coder had an idea in the morning and by the same evening it might already have 10,000 users.

When the price list was being drafted for making Skype calls to telephone networks (Skype Out), its creators didn't bother with market research. Instead, two Skype employees devised the list in one night, using nothing but Excel.

After three years of operating, someone had an idea—why not draw up an annual budget?

In Tallinn, Skype occupied one room after another in its "new" office in Mustamäe—a Soviet-era block of flats turned into a house of cybernetics. Toivo Annus, who was in charge of Skype's global development, had a kiddie pool set up in one of the boardrooms and a got into a fight with the janitor about whether the pool would fall through into the basement when it was filled with two tons of water.

Every week, five to ten 10 employees joined the company. The screening system was simple and very much the product of Toivo Annus. Pass the test assignment? You're hired! Wage negotiations were often redundant—if you deserved to be in the company, you'd be paid what you needed.

Here's how casual the corporate culture was: in Silicon Valley, an American named Eileen Burbidge ditched Yahoo to come and work for Skype. She worked for free in London for eight months (she got paid later, though) and said that Skype was "the best time of her life".

"My first day I learned that I'd have to finalize my contract and terms with Niklas," Burbidge said. "Neither of us were concerned about it at that time. We were both much more interested in just getting me started and working. It was my fault for not raising this 'small admin issue' for months.

Like Jurvetson, Burbidge said that the Estonian team was able to work at the speed of light. "Having just come from 11 straight years of working in Silicon Valley, I was super impressed and actually amazed that these technical leaders seemed not to have any ego at all, didn't care about titles, didn't care about roles or pointing fingers and were all insanely committed to seeing the 'project which had turned into a company' succeed," she said. "They had a sense of responsibility and discipline that I had never witnessed before."

Used to American small talk, Burbidge quickly realized it would not work in this environment.

"I was used to greeting people with a 'ping' or a 'you there?' followed by a 'how are you?,' 'having a good day?,' 'am I interrupting?,' or 'can I ask you a question?' But for Toivo all of this was superfluous and simply needless cycles. He would just reply with one word: 'Ask.'"

Skype's internal IT was just as casual. The location of the company's servers, who was being paid for them, and how much was only vaguely known to one person—system administrator Edgar Maloverjan, also known as Ets.

If the development team needed something, Ets would go to the store and wave his company credit card around. If a server had to be restarted, Ets would call the company's business partner. Sometimes they would say: "I can't—I dunno which server's yours! Besides, there's a game on."

When Ets needed server space, he Googled "data center" and "Luxembourg" and found a small service provider called Datacenter Luxembourg S.A. (Zennström and Friis sometimes joked that they didn't see why Skype needed servers at all, as everything was supposed to be peer-to-peer.) On one occasion, he even delivered servers from Sweden to Denmark in the boot of his car. It didn't matter where or how—what mattered was that Skype was working.

But as the company grew, it also acquired more professionalism. It was eventually being developed by people who the Estonians had never heard of.

The service was connected to telephone networks through the work of a Brit who happened to share his name with the pop star Michael Jackson. And Skype's visuals, trademark, language and look were all created by an ambitious young Danish designer, Malthe Sigurdsson. (He was later nominated as one of London's five most stylish men. When the Dane first arrived in Tallinn in 2003, however, Annus booked him into one of the city's worst accommodations—Tähetorni Hotel.)

Skype soon became all grown-up, and it had plenty of suitors lining up to court it. In the summer of 2005, Jaan Tallinn was often in London participating in talks with eBay, discussions that were being held at Morgan Stanley investment bank's offices. On one occasion someone jokingly said, "Hey, Jaan, are you gonna sell Skype?" Tallinn replied, "Yes, and I'll be bringing a big suitcase with me to take the money home in."

They turned out to be the words of a prophet.

First sale

The news of Skype being sold to eBay broke in September 2005. Skype was sold for $2.6 billion. The Bluemoon boys and Annus each got about $42 million, Friis and Zennström more than 10 times as much. Another 100 people in the Tallinn office and 40 in London also had company options.

Ross Mayfield, an American advisor to the President of Estonia, visited Skype's Tallinn office that day and had no idea what was going on around him. "I was struck by how the team had their heads down working like a normal workday," Mayfield said. "In Silicon Valley, everyone would be celebrating and counting their stock options. The core team had a no-nonsense focus on the work showing them the way and a real sense of purpose."

A couple of days before the news, the Estonian forces gathered at Annus' place for a briefing. Everyone had another go at calculating their options. "The atmosphere was ambivalent," remembered Kaido Kärner, a Skype engineer. "On the one hand, you had all this money. On the other, Skype used to be a value in itself. Now it was someone's property."

Jurvetson, the company's investor, did not agree to the sale and said Skype's value should be allowed to grow a little more. Its founders, primarily Zennström and Friis, were the ones who made the decision to sell.

"We kept getting offers," Jaan Tallinn said. "The question was when to start taking them seriously. Each new offer was slightly higher than the last." The fear that Skype might be past its sell-by date sped up the sale. "MSN and Yahoo had fixed their flaws," Tallinn said. "Google launched Talk the same year and started a rumor that the service enabled you to call phones for free. Calls to phones were and still are practically the only source of income for Skype.

"We saw how the risks kept on increasing; the offer was really good and would probably stop there. Besides, in summer 2005, for the first time, there was a moment when our user base started decreasing, which unsettled us quite a lot. We thought we might have a bug or something."

"In 2005, we knew that Yahoo, AOL, Microsoft, and Google were all getting into our market," Zennström added. "We had 20 million active users at the start of the year, while they each had over 100 million active users. Hence it was impossible to assess whether we were big enough to continue to be number one or if we would get crushed by one of them. Therefore we initiated strategic discussions with all of them about partnering, but it led to the same result: they wanted to either acquire us or compete. Because there were a lot of interested parties, we managed to get a very good price, so coupled with the high risk that they could all crush us, it led to the decision to sell."

Clash of cultures

When the deal was done, the Americans sent their manager Brian Sweeney to Tallinn to find out what they bought. He arrived at the Skype office and, to his surprise, everyone was quietly typing away at their computers.

A call came in from the US. "What's going on there?"

Sweeney replied, "Seems like nothing's going on..."

But Estonia grew on Sweeney. The office reminded him of the early years of eBay when people were enthusiastic about their work and there was no jibber-jabber or showing off. But the sale—and continued growth—did change Skype over the next few years. The Tallinn employees eventually felt a strong divide growing between them and Skype's other offices, especially London.

One issue concerned staffing. Estonia had plenty of great engineers, but it had no brand managers. Instead of showing apprentices in Tallinn how to become masters, Skype raised an army of managers in London, while the coders remained back in Tallinn.

"In the end, I spent half of my time pointlessly arguing with these people [in London], trying to make them understand that this camel's only got one hump," said engineer Kaido Kärner, who lost his motivation to work as a result of the quarrel. "They'd been working for the company for two weeks and thought they knew how things should be done."

Zennström said in an e-mail, "We faced both engineering vs. non-engineering and also Estonian vs. Anglo-Saxon culture and communication challenges. It is always easier to have one office and one nationality, but I think our mix, while harder to manage, built a stronger company and culture."

To create a sense of solidarity, the whole of Skype's international staff was invited to let their hair down in Estonia. At a fancy costume party at Sagadi Manor, Zennström dressed up as a pirate. At another event, Annus turned up as a blue monkey (inspired by software called Bonzi Buddy), holding a carton of juice and a bottle of Viru Valge vodka.

Then in 2006, the Americans were invited to what became the craziest party in Skype's history. It took place in Pärnu at the Strand Hotel. The more conservative management from the American eBay now met the liberal Estonian startup Skype en masse. The days were filled with "corporate bullshit bingo," as some Skypers called it, where the company's plans for development were outlined. In the evening, however, it was party time. Even the Californians sometimes think back on those nights.

As the bar closed, everyone spontaneously gathered by the pool and jumped in, fully clothed. Zennström was pouring vodka for everyone—first behind the bar, afterwards on top of it. "What happens in Estonia stays in Estonia," the usually reserved Zennström promised the guests.

Those eBay representatives who went back to their rooms by the time the pool party started turned on their TVs and saw a live broadcast of the party. They were shocked.

The owner of the hotel worked out the damages the next morning and Skype covered them. Skype users would get their own special emoticon to celebrate the party.

"We were young, most of us single, with no kids or anything—and if we knew how to work, we knew how to party too," one Skyper remembers.

But the parties didn't fix the broader cultural issues. The straightforward Annus left. The new Skypers loved Microsoft Outlook, which was banned by Annus. As he put it, "If we're still sending e-mails, why did we even make Skype in the first place?"

In 2007, Jaan Tallinn sent the company's management and all of the employees a heartfelt letter called "Jaan Tallinn's million-dollar manifesto" that pointed out in detail all of Skype's technological and commercial blunders. He also promised to contribute a million dollars of his own money, provided the problems were solved.

"The people who had a start-up background all saw that things were getting out of hand and no longer being fully done," Tallinn told me. "People were focusing on things that were nice to talk about at meetings instead of what was good for users—and also that Skype kept issuing glitchy plugins that hadn't been properly developed."

Microsoft steps in

For the second time, Zennström and Friis cashed in on selling Skype. That's because, instead of giving eBay the critical base technology that kept Skype going (the P2P system known as "Global Index"), Zennström's and Friis's company Joltid still owned it—they simply licensed it to Skype. The whole situation devolved into threats of litigation until a 2009 settlement gave Zennström and Friis a chunk of Skype ownership, which made them even more money when Microsoft bought the company.

Almost none of the people who were there when Skype started are still with the company. Decisions are no longer made in Tallinn or London but in Redmond. Soon, Skype will probably become Microsoft Skype or Microsoft Talk, the product of a massive multinational rather than a scrappy startup.

Recent revelations from Edward Snowden, the NSA leaker now granted asylum in Russia, have also shone a light on Skype's new willingness to help law enforcement. Snowden revealed, for instance, that in February 2011 eBay opened up the "spy-proof" Skype to US intelligence agencies. In order to clear up the technological and legal nuances of snooping, a secret project called Chess was conducted in Skype—a scheme only a few people in the company were aware of. That cooperation has apparently extended to Microsoft.

Taking all of this into consideration, it is no wonder many of the employees of the original Skype consider the company's upcoming tenth birthday its funeral. I call Steve Jurvetson on the other side of the Atlantic. He struggles for half an hour but cannot get Skype to work. I call his mobile. "Did Microsoft mess Skype up?" I ask him. "I wouldn't be surprised, Microsoft has messed up almost everything," he replies.

"Being owned by a large company with other business interests across the globe is a negative for Skype. A big multinational, like eBay or Microsoft, needs to accommodate business partners and governments across the globe, which limits Skype's ability to pursue growth aggressively in ways that threaten the entrenched government or business interests. For example, Skype for Wi-Fi-enabled cell phones has been delayed by pressure from wireless carriers who see their voice revenue at risk."

Will Skype even keep its Tallinn office? Microsoft has been known to shut local European offices (like those of the Norwegian Fast), but it has also kept and developed some national units (like the Danish Axapta). In 2011, Steve Ballmer said in Tallinn that the company was not just short of engineers in Redmond but elsewhere in the world as well. There's a group of development centers situated in similar time zones on a strip heading from North to South from Norway to Israel. Some creators of Skype are certain the Tallinn office will be closed; others say Microsoft might start developing other products here too. Much depends on Estonia's attitude toward foreign engineers—and right now, the country is not too open to them.

The next 10 years

During the lowest point of the recent global recession, a rumor spread in Tallinn that the Estonians from Skype and the people formerly involved in a giant forestry company called Sylvester were the only ones still knee-deep in cash. Skype employees half-jokingly say that Annus, Heinla, Kasesalu, and Tallinn won the jackpot.

Jaan Tallinn doesn't agree, saying that he had some extra cash as early as 1999 when Tele2 paid him generously for developing the Everyday.com portal. In any event, he says that money was not a goal in itself for any of the four Estonians who helped start Skype. Having become multi-millionaires, they didn't get cocky or vain. Almost none of them bought an expensive sports car. Instead, the money was a bit of a nuisance, as it needed to be invested wisely.

The changes it brought were most visible in Kasesalu, who has cut off all his hair, shed a great deal of weight, and picked up a driver's license. The change was so drastic that his friends started asking, "Priit, are you seriously ill?"

"My life has changed quite a bit," Tallinn says now. "After Peter Thiel, I'm the second richest person in the world investing in the survival of the human race. Time is now much more valuable than money."

Annus left Skype as soon as the company was sold to eBay in September 2005. Tallinn and Heinla continued for another couple of years before resigning. Kasesalu still plays for the Skype team to this day. Zennström and Friis, of course, have made fortunes.

Today in Tallinn, those working for Skype are not exactly in high spirits. The coffee and furniture are fancier than ever at the office in Mustamäe. But the inner fire and sense of cooperation that Toivo Annus inspired in people are damped. According to one source, the company's employee surveys confirm that the number planning to quit is growing all the time.

Taavet Hinrikus, whose company Transferwise aims to revolutionize how money is transferred, said it would be a blessing if Skype eliminated its office in Tallinn. In that case, talented Estonians could do things that would be far more useful to the country than the tax revenue of few hundred high earners.

I ask Jaan Tallinn about the odds that the office in Estonia would close within a decade."

"35 percent," he said.

Zennström, however, is an optimist. He wrote, "The fact that they (Microsoft) have closed down MSN Messenger tells us that they are committed to Skype, which is one of the strongest brands in their portfolio. I hope you will e-mail me in another 10 years and want to do another story about Skype's second 10-year history."

Note: This story was originally published in the Estonian weekly Eesti Ekspress on July 25, 2013.

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